Credit card companies suffer huge losses as spending declines…
The shaky U.S. economy is starting to affect the credit card sector with a sharp decline in consumer spending. Bank of American reported credit card spending was down 17.2% last quarter; Citigroup saw a decline of 15% and JPMorgan Chase saw an 8% drop in credit card spending. Although MasterCard reported a 14.2% increase in revenue in the fourth-quarter, signs of slowing growth are evident with an 11% decrease in card volume.
With a fourth-quarter loss of nearly $1.8 billion, Bank of America has been hit especially hard by the financial crisis. The loss was reported on the same day that the U.S. government agreed to provide $20 billion in federal aid and loss protection on $118 billion in toxic assets. Explaining their request for the additional government support, Bank of American maintained that larger than expected fourth-quarter losses at Merrill Lynch caused the problems and only came to light only after shareholders approved the combined venture. But 25% of the protected asset pool belonged to Bank of America, Chief Financial Officer Joe Price said, a signal that the problems weren’t tied strictly to Merrill’s disintegration.
Citigroup Inc. followed B of A’s report a day later with a net loss of $8.29 billion in the fourth quarter, the largest per-share loss since the crisis began. JPMorgan Chase squeezed out a fourth-quarter profit, but its results were anything but impressive.
Credit card spending data “was far worse than we expected,” said KeyBanc analyst Anurag Rana while downgrading Visa Inc., MasterCard Inc. and Heartland Payment Systems Inc. to neutral from buy, citing big declines in credit card purchase volumes. Visa, MasterCard and Heartland Payment shares declined more than 7%, 5% and 4% respectively. “Based on this spending data, volume declines could be more substantial than what we believed were our conservative assumptions,” Mr. Rana added.
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